MTN South Africa Shelves Discount Share Scheme

Mergers, Acquisitions and Financial Results

MTN's huge black empowerment plan to spread its shares among ordinary citizens has been shelved as most people are too cash-strapped to buy into the business.

The cellular network hopes conditions will buck up enough by year's end for it to relaunch the scheme to sell about 6% of its stock to black buyers at a discount to market value.

The group said last week its implementation of a new empowerment deal in the first half of this year was postponed in the light of "severe constraints" in financial markets. The directors felt it was not in best interests of MTN, its shareholders and new investors to go ahead right now. The board remained committed to implementing the scheme "at the appropriate time".

"It doesn't change the transaction," said MTN representative Xolisa Vapi. "Nothing changes except it's being moved to a time when the conditions are better, because right now the financial markets are tight."

MTN was making no further comments as it considered its statement to be sufficient, Vapi said. However, a source said that trying to raise money from potential investors would be difficult because interest rates were high and credit was not easily available.

If MTN tried to forge ahead, too few ordinary people would have enough spare cash to invest to create the broad-based shareholding it sought, he said. MTN's scheme was devised to replace its original empowerment deal of 2002, when black managers and about 3200 staff bought 13.1% of the group through a company called Newshelf.

When the new empowerment plan was announced in December, their 243.5-million shares were worth R24.4bn, making it SA's most successful empowerment deal in terms of wealth generated for participants. It has turned several employees into millionaires, including some of its top white employees.

MTN CEO Phuthuma Nhleko owns 7.92% of the Newshelf shares, while chief operating officer Sifiso Dabwenga and finance director Rob Nisbet each own 5.59%.

Newshelf paid an average of R13.90 each for the shares by borrowing R4.3bn. Some of that debt was refinanced by the Public Investment Corporation (PIC), the government pension fund administrator. Newshelf now owes the PIC about R21.8bn, devouring a substantial part of the market value.

However, the Newshelf members were still expected to receive R3.1bn to R3.4bn in dividends. The valuations are fluctuating, however, with the shares trading at R90.50 last week, more than 10% down from a month ago, while interest on the loans continues to mount. The Newshelf deal expired technically in December, and MTN is still winding up that investment. It will buy back the shares for a nominal fee and pay off the loans.

Business Day